Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Vanguard’s former super man lands at Bell AM
Former Vanguard head of superannuation Michael Lovett has joined Bell as its new CEO as the boutique firm looks to expand its footprint both in Australia and offshore.
And while stockpickers are increasingly (and ironically) under threat from passive giants like Vanguard, Lovett reckons Bell has what it takes to succeed in a tough environment for active.
“It’s a firm that’s done an amazing job of getting to $5.5 billion and has an opportunity to go to the next level,” Lovett tells ISN. “They’ve started to gain some traction offshore, particularly in the US.”
Bell’s client base both at home and away is predominantly institutional and “likely to stay that way”. The manager doesn’t have plans to bolt-on new teams or launch new strategies in the increasingly lucrative alternatives space, despite the fact that both approaches have become very popular with active equity managers attempting to get a competitive edge as their traditional client base withdraws from the market.
“It’s tough, and I’ve come in eyes wide open,” Lovett says. “The ability for active managers to outperform is a high bar, and the institutional market is consolidating and the big funds are insourcing more and more. The opportunity set is decreasing in the institutional market, and ETFs really dominate in the retail market – mainly passive ETFs, though I do believe there’s an opportunity for active ETFs to pick up some market share there.”
“What I’d say is that there’s many active managers who are going to struggle, but I do think that there’s an opportunity for managers who have strategies that are different or unique enough to outperform that can prosper in this environment.”
Of course, Lovett’s old shop and its peers have had a bit to do with the dismal business environment for active equity managers, with institutional investors baulking at fees and questioning the ability of smaller managers to absorb mega-mandates.
“Passive will continue to do exceptionally well, and I have no doubt about that, but I do think there’s going to be opportunity for active into the future,” Lovett says. “The things that attracted me to Bell are its long-term track record and the stability of its investment team; they’re a quality manager in the global equities space and have a SMID cap product that’s quite different to others, so they’ve got a bit of uniqueness with a long-term track record.”
While much has been made of Lovett’s departure from Vanguard just months after it launched its superannuation product, he says there was nothing behind the exit but a desire for change.
“I’d been there 12 years and thought it was a logical stepping point; I was very upfront with Vanguard about that. If I was going to stay I would’ve stayed another five years, and ultimately been there 15-17 years… I loved my time at Vanguard and have nothing negative to say; it was just time.”
